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• A focal point for public and Congressional debate on the President's fiscal objectives and programmatic proposals.

It is also important to be clear about what the budget does not do. It is not a measure of the total influence of federal policies on the economy: it does not take account of monetary, foreign exchange, and regulatory policies, for example. It does not measure the impact of all government spending and tax policies because state and local government operations are not directly included. Although information about the combined effects of federal, state, and local government fiscal operations ought to be made available on a regular basis, perhaps through the President's Economic Report, it is logical for the federal budget to include only those budget activities over which the President and Congress have direct control.

The federal budget should also not be viewed as a measure of the full impact-indirect as well as direct-of federal spending, tax, and credit activities on the economy. For example, when grants-in-aid are awarded to local governments on a matching basis, only the amounts paid by the federal government are counted. Similarly, induced effects of federal spending on private outlays are not counted as part of the federal budget total. In the case of credit activities, on the other hand, current practices result in measurement of indirect effects in some cases but not in others. COMPREHENSIVENESS: THE NEED FOR A UNIFIED BUDGET

The budget has not one but a variety of purposes. Various crosscuts of the budget can be made to provide information that is relevant for such different purposes. Nevertheless, the 1967 Commission on Budget Concepts concluded that if budget policy is to be manageable and understandable, there must be one comprehensive, unified budget on which Congressional debates and votes can focus.

We strongly believe that continued adherence to a comprehensive, unified budget is essential to the effectiveness and credibility of the budget process. A unified budget that includes all activities by federally owned entities is necessary to allow the Executive Branch and Congress to make informed decisions on the overall fiscal and financial impact of federally owned activities and to serve as a framework for trade-offs among competing claims on federal fiscal resources. Crosscuts of budgetary information should complement the unified budget, not replace it.

The desirability of a unified budget has recently been challenged. Proposals have been made to exclude capital outlays and other elements from the present unified budget. The Social Security legislation that was passed at the end of March 1983 specifically provides for removal of Social Security from the unified budget in fiscal year 1993. Proponents of these

proposals argue that Social Security represents long-term concerns that require intensive consideration in their own right. Such activities, they say, should not be thrown into the same hopper with ordinary budget items and be subject to the year-to-year adjustments of budget priorities and totals.

The major difficulty with this argument is that it can be applied to a great many other elements of the budget as well, including defense spending and human-investment policies. It is likely, too, that once one program (Social Security) that is supported by earmarked trust-fund revenues is removed from the unified budget, demands will grow that similarly funded programs should also be removed from the budget.

Given the enormous difficulty of bringing overall federal budget activities under effective control, we believe that no activity should be fully exempt from justifying its outlays against those of others. Moreover, assessment of the government's fiscal impact and borrowing needs requires information about all federal spending and receipts, whether or not this information is formally included in the unified budget. Breaking up the unified budget would lead to considerable public confusion when it comes to assessing the budget's overall economic and financial impact.

It is true that Social Security is a very special program. It is widely regarded as a long-term contract between the people and the government, and its basic features should clearly not be subject to annual adjustments governed by short-term considerations. A case can be made, however, that periodic marginal adjustments in cost-of-living allowances may be justified and would not necessarily run counter to the underlying long-term commitment of the Social Security system. As Alice Rivlin, director of the CBO, recently pointed out:

In the long term. . . inclusion of Social Security in the unified budget
does force the Congress to ask the right question: how much can the
nation's economy afford for social insurance given competing claims on
the economy and given the willingness of taxpayers to pay? Making
Social Security a separate entity would unnecessarily narrow this ques-
tion into "how high a level of benefits can payroll taxes support?"-
question that ignores competing claims, alternative tax sources, and the
burden of other taxes.'

We oppose the scheduled removal of Social Security from the unified budget and urge Congress to reverse its recent action calling for such removal in fiscal year 1993. At the same time, we support showing Social

1. Letter from Dr. Alice Rivlin to Senator Pete V. Domenici, chairman of the Senate Budget Committee, 14 March 1983.

Security as a separate budget function within the unified budget, as has recently been suggested by the chairmen of the House and Senate budget committees and the director of the Office of Management and Budget in a joint letter to the chairman of the National Commission on Social Security Reform.2

Although removal of Social Security from the unified budget is scheduled for ten years from now, the comprehensiveness of the budget has in recent years already been somewhat compromised through the use of offbudget agencies. In fiscal year 1984, spending by these agencies is scheduled to total $17 billion on a current-services basis. For the most part, shifts of programs or agencies to off-budget status have been the result of arbitrary decisions and have been primarily designed to avoid full scrutiny of such programs under the budget process. The role of the Federal Financing Bank in converting on-budget federal loan guarantees into off-budget federal direct loans has been of particular concern. To make the unified budget more comprehensive, we recommend that off-budget activities be incorporated in the unified budget. In particular, this should include the lending activities that are financed by the Federal Financing Bank.


In addition to being comprehensive, the information included in the budget should conform to a number of requirements if it is to be fully effective as a tool for responsible budget policy making and enforcement. • Clarity. The information should be clearly understandable to both lawmakers and the general public. Moreover, it should be relevant to the decisions that have to be made. Ambiguity of budget information is an invitation for budgetary abuse.

• Future Orientation. Budget information should adequately cover the multiyear implications of existing and proposed programs, including long-range commitments, contingencies, and the impact of alternative economic scenarios and demographic changes.

• Comparability. It should permit all comparisons needed for understanding governmentwide issues and policies and for establishing priorities among different activities and programs.

2. Letter to Dr. Alan Greenspan, chairman of the National Commission on Social Security Reform, from Representative James R. Jones, chairman of the House Budget Committee; Pete V. Domenici, chairman of the Senate Budget Committee; and David Stockman, director of the Office of Management and Budget, 3 December 1982. The signers of this letter strongly opposed taking Social Security out of the unified budget.

• Credibility and Integrity. The information should be credible, the economic assumptions should be reasonable, and the expectation for budgetary savings through proposed legislation and administrative actions should be realistic. The integrity of the information provided should be beyond question.

Timeliness. Budget information should be available in time to provide Congress with the data essential to the evaluation of the President's budget requests, to permit full and adequate public discussion, and to enable Congress to act on the budget before the new fiscal year begins.

These requirements, of course, are not always mutually consistent. The desire to provide accurate information on the differential economic impact of different categories of federal transactions, for example, can come into conflict with the goals of clarity and simplicity. In designing particular budgets, compromises among competing requirements will inevitably have to be struck. The challenge is to design a budget that adheres to an optimum degree to the kinds of requirements we have cited.


Since the late 1970s, federal credit programs, including both direct loans and loan guarantees, have expanded far more rapidly than direct federal spending (Figure 7). Total net federal lending rose from $25 billion in fiscal year 1977 to $54.1 billion in fiscal year 1981. After a sharp decline in 1982 as a result of the combined impact of recession and high interest rates on federal mortgage loans, the level of credit is projected to increase to $75.4 billion in fiscal year 1983. For fiscal year 1984, the President's budget proposes a cutback to $59 billion. The budget estimates that the increase in net federal lending between 1977 and 1983 amounted to more than 200 percent, compared with a rise in regular federal outlays of 100 percent.' The burgeoning credit activity was concentrated in off-budget direct loans and in loan guarantees. In the past few years, moreover, several

5. If the third category of credit advanced under federal auspices, loans by government-sponsored enterprises, were included, the resulting aggregate would show an even faster rate of growth. Examples of such enterprises are the Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank System (FHLBS). Because these enterprises are privately owned, their activities are not included in the budget totals. However, they carry out federally designed programs and receive tax and other special benefits that give their securities a preferred position in the securities market relative to those of completely private institutions.

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